Everyone active in the real estate market today laments the lack of available inventory. Orange County housing market prices are rising due to the restricted inventory. Banks are focus on loan modifications and short sales to resolve their prior bad loans. In the interim, delinquent mortgage squatters are enjoying their free ride.
Earlier this year, the State of California passed the Homeowner Bill of Rights (Detailed review of the new changes to California foreclosure law). In the new law, banks are no longer allowed to pursue dual-track foreclosure processing. If a loanowner is seeking a loan modification, the process must be allowed to run its course — gaming the system included — before the bank and finally push out the committed squatters. In preparation for the new law taking effect January 1, 2013, banks are cancelling all their foreclosure proceedings on properties pursuing a loan modification. Apparently, this is a whopping 62% of all loanowners in foreclosure.
October 2012 California foreclosure Cancellations were up 62.1 percent from the prior month, and 36.7 percent compared to last year. While this is not the first time Cancellations have spiked, this is the largest one-month increase since we started tracking foreclosures in September 2006. It seems likely that the increase is being driven by the Homeowner Bill of Rights legislation that goes into effect on January 1, 2013 and its provision to restrict the dual-tracking of foreclosures. Dual-tracking is the term applied to loans which are being considered for either a short sale or loan modification while simultaneously proceeding through the foreclosure process. Prior to January 1, lenders will have to cancel any foreclosure on a loan for which a short sale or loan modification is being considered, and it appears that process has likely already begun.
October 2012 California Notice of Defaults was down 8.0 percent from the prior month, and down 48.9 percent compared to last year. October 2012 California Foreclosure Sales were up 9.3 percent from the prior month, but down 38.9 percent from the prior year..
“The California Homeowner Bill of Rights that takes effect in January 2013 is beginning to impact foreclosure trends,” said Sean O’Toole, Founder and CEO of Foreclosure Radar. “This is another example of where changes in foreclosure trends are driven by government intervention, and not necessarily economic recovery. While the impacts are still unclear, the elimination of dual tracking may avoid some unnecessary foreclosures, but will lengthen the foreclosure process and delay ultimate recovery. Expect further impacts to foreclosure trends in the months ahead.“
For anyone waiting for the foreclosure inventory to lessen the supply shortage, this is not good news. As I noted recently, MLS inventory is NOT coming as foreclosure filings dry up. Now with a bevy of cancellations, there is little or no chance of any significant amount of foreclosures hitting the market and ending the supply shortage. Until banks manage to push prices back up to the peak, restricted inventory is the new normal.
The banking cartel won.
California REO acquisitions up nearly 10%
REO inventories stabilize
The real goal of lender REO policy this year was to reduce their standing inventories. Lenders were holding tens of thousands of homes waiting for better days. Those homes have been cleared out, and the remaining inventory is in their (very slow) processing pipeline. The pipeline REO has stabilized statewide at about 65,000 units over the last 4 or 5 months.
Pipeline processing taking even longer
Banks are certainly not worried about making their foreclosure processing any more efficient. Since it now takes them nine and a half months to process a foreclosure, the 65,000 they currently own are all in process. It represents the total acquisitions over the last 9 months. I don’t expect to see REO inventory levels drop much from here unless they decrease their processing times.
Notices are also declining
Lenders have greatly reduced their foreclosure filings over the last year despite the fact they have no shortage of delinquent squatters to foreclose on. It is a sign that banks are in no hurry to process California foreclosures due to the upcoming law changes on January 1.
The story in Orange County is similar to the rest of California. REO processing is back to levels of April through July. Overall, REO processing is down about 50% from last year’s levels.
Notices of default in Orange County also took a dive for the third straight month. Squatters in Orange County can breathe a little easier.
The inventory saw a similar leveling off.
Amend-extend-pretend continues. Lenders are in no hurry to process more foreclosures, and their liquidations still hang over the market. Over the last six months, their snail’s pace of liquidations has created a dramatic and completely artificial shortage of supply which has caused prices to shoot upward. Expect more of the same going forward. It might get even worse.
Another mortgage doubler
The Ponzis of the housing bubble were prolific refinancers. The former owners of today’s featured property had nine bank actions on their property in the ten years they owned it. Over the course of the first six years, they managed to nearly triple their mortgage.
- This property was purchased for $147,000 on 5/18/2000. The former owners used a $117,000 first mortgage and a $30,000 down payment.
- On 5/30/2002 they refinanced with a $203,750 first mortgage.
- On 4/30/2003 they obtained a $58,500 HELOC.
- On 2/17/2004 they refinanced with a $241,875 first mortgage.
- On 5/11/2005 they opened a $82,200 HELOC.
- On 4/2/2007, just as New Century was imploding, they refinanced with a $312,000 first mortgage and obtained a $18,000 stand-alone second.
- On 8/6/2007 they refinanced with a $311,800 first mortgage.
- On 1/22/2008 they refinanced with a $310,800 first mortgage.
- On 3/23/2010 they refinanced with a $309,550 first mortgage.
- The were served a NOD in March 2012 which suggests they didn’t pay the final refinance very long.
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Proprietary OC Housing News home purchase analysis
5825 East CREEKSIDE Ave #4 Orange, CA 92869
$309,900 …….. Asking Price
$147,000 ………. Purchase Price
5/18/2000 ………. Purchase Date
$162,900 ………. Gross Gain (Loss)
($11,760) ………… Commissions and Costs at 8%
$151,140 ………. Net Gain (Loss)
110.8% ………. Gross Percent Change
102.8% ………. Net Percent Change
6.0% ………… Annual Appreciation
Cost of Home Ownership
$309,900 …….. Asking Price
$10,847 ………… 3.5% Down FHA Financing
3.41% …………. Mortgage Interest Rate
30 ……………… Number of Years
$299,054 …….. Mortgage
$88,044 ………. Income Requirement
$1,328 ………… Monthly Mortgage Payment
$269 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$77 ………… Homeowners Insurance at 0.3%
$312 ………… Private Mortgage Insurance
$289 ………… Homeowners Association Fees
$2,274 ………. Monthly Cash Outlays
($196) ………. Tax Savings
($478) ………. Equity Hidden in Payment
$12 ………….. Lost Income to Down Payment
$59 ………….. Maintenance and Replacement Reserves
$1,671 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$4,599 ………… Furnishing and Move In at 1% + $1,500
$4,599 ………… Closing Costs at 1% + $1,500
$2,991 ………… Interest Points
$10,847 ………… Down Payment
$23,035 ………. Total Cash Costs
$25,600 ………. Emergency Cash Reserves
$48,635 ………. Total Savings Needed
The property above is available for sale on the MLS.
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